How To Determine Your "Right" Price

Written by Drew Cameron    Comment & Respond    Print Article

How do you determine the “right” price for which to sell your products and services? 

Beyond all the theory and fancy formulas and methodologies for arriving at the correct selling price, the right price is actually the price you are content to sell your wares for and the price which customers are willing to pay.

As you can surmise from the above, the litmus test for this is simply passing two qualifying factors:

1. Are you happy with your price?
2. Are customers willing to pay your price?

You require an affirmative in both instances for your price to be the "right" price.

Are You Happy With Your Price? 
Let’s suppose you were able to get as many sales as you wanted at $x, ask yourself:

• Would I be happy earning $x per sale or # times $x?
• Does $x represent a fair price for the value provided?
• Will you resent or appreciate your customer at this price?
• Will you and your staff be inspired to go the "extra mile" in service for this price?
• Would you attract your ideal client at that price?
• Can you cover your direct costs, overhead, and profit objectives for this price?
• Can you provide an equitable return to shareholders or owners at this price?

For example, let’s say you charge $85 an hour for time and material service work when the “going rate” is $125 an hour and the average flat rate company charging $325 an hour.  Suppose with an aggressive marketing campaign to help push you through the shoulder seasons you get booked solid for four straight weeks right before you expect the peak weather conditions to arrive    

Now suppose the peak weather conditions arrived earlier than expected.  Tons of potential customers begin entering the market without being baited by marketing and the lure of a special offer.  Are you going to be happy with $85 an hour, when your competition is charging full rate or even a premium and staying busy? In order to determine your own "right" price that satisfies the questions above you need to assume that there is an adequate supply of customers and sales for your company.

Now this all sounds great in theory, but your probably wondering if you can attract enough customers and generate enough sales at your new “right” price. This is where the second qualifying criteria comes in to play. 

Are Customers Willing To Pay Your “Right” Price?
In order to derive your “right” price you had to determine the amount of value you are willing to provide for $x.  The customer perceived and realized value offered has to far exceed the price for customers to be willing to pay $x. In other words, you would pay me $100 if I promised and guaranteed to deliver $1,000 worth of value provided you wanted or needed what it is I am offering and given the fact that you trust me. As such, customers are willing to pay your “right” price provided: 

• They are qualified (have a need/want, money, etc.)
• The value outweighs the price and you can prove it
• Likely customers realize the overwhelming value they receive for their dollar
• Potential clients trust you will deliver as promised

Published: May 29, 2008 7:00 AM by Drew Cameron